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What should I do if I am being investigated for PPP fraud?

ppp-loan-fraud

If you are being investigated for PPP fraud, the first step is to contact an experienced federal criminal defense lawyer to guide you through this process. Federal criminal prosecutions for fraud can carry serious penalties depending on the amount of money involved.

The U.S. Department of Justice (DOJ) is cracking down on PPP fraud by ramping up investigations into loan borrowers across the country.  Federal prosecutors have already filed indictments against borrowers in Texas, Georgia, and Massachusetts, and the number of prosecutions is expected to increase significantly in the coming months.

Business owners who are accused of fudging the numbers or lying on their PPP loan applications face stiff prison sentences and fines.  For this reason, it is important for business owners to consider hiring a lawyer as soon as they become aware of a federal investigation into their PPP loans.

What is the Paycheck Protection Program?

The Paycheck Protection Program (PPP) is part of a massive stimulus package created by Congress known as the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).  The PPP provides businesses with forgivable loans to pay for temporary payroll costs and certain other business expenses including mortgages, rent, and utilities.

The purpose of the program is to provide economic relief to businesses affected by the downturn in the economy due to the coronavirus and to provide an incentive for business to keep workers.  The amount available for each business is about 2.5 times the borrower’s average monthly payroll costs.  If businesses keep employee wages and counts stable, the loans can potentially be forgiven.

What sparks a PPP fraud investigation or prosecution?

The federal government has promised that audits of PPP loans will be a top priority, especially for loans in excess of $2 million.  A federal investigation into PPP fraud can begin a number of different ways.  The most obvious case is where the borrower lies about having a business in order to obtain a loan or the borrower fabricates the number of employees in order to obtain a larger amount.  In many cases, however, the alleged fraud won’t be so obvious.

The PPP has raised many questions about who exactly is eligible to apply for a loan and how to go about obtaining loan forgiveness.  One issue that will almost certainly be at the center of many investigations is the good-faith certification.  For every PPP loan, the borrower must certify in good faith that “current economic uncertainty makes this loan request necessary to support the ongoing operations of this applicant.”  What this means is not exactly clear.  The Department of the Treasury issued an explanation that borrowers must take into account their current business activity as well as their ability to access other sources of funds to support their business. If the government believes that a business owner did not need the loan, an investigation and criminal charges could follow.

Investigations into alleged PPP fraud will also focus on the size of the loan.  The amount a borrower is eligible to receive is determined by a specific formula.  If these calculations are off and the borrower receives more than he or she should have, the borrower could be accused of fraud.  Specifically, businesses can obtain 2.5 times their monthly eligible payroll.  For payroll calculations, there is a $100,000 salary cap and borrowers are required to provide supporting documentation such as tax documents.  Federal investigations and prosecutions will likely focus on both the accuracy of the calculations as well as the accuracy of the documents supporting those calculations.

Loan forgiveness will also be a major focus for federal investigators and prosecutors.  The PPP allows for loans to be forgiven, but there are strict requirements a borrower must follow in order to receive this benefit.  For instance, loan forgiveness only applies to payroll costs, mortgage interest, rent, and utility payments which were made in the eight weeks from when the loan originated. Business that seek forgiveness for other expenses, or those who do not properly document their expenses, face potential accusations of wrongdoing.

What happens during the investigation?

Most PPP fraud investigations will begin with an audit conducted by the Small Business Administration (SBA).  During an audit, the SBA may ask for additional documentation to ensure that the loan amount was proper, that the business had a good-faith need for the loan (i.e., it was negatively impacted by the COVID-19 pandemic), and that any loan forgiveness was proper.  If the SBA determines that a borrower was ineligible to receive a loan, the SBA may ask for the loan to repaid by a certain date.  In other cases, especially where the SBA believes the borrower’s actions are fraudulent in nature, the SBA may refer the matter to the Department of Justice for criminal investigation and prosecution.

A PPP fraud investigation or prosecution may also begin with the Department of Justice. Once federal law enforcement officers open an investigation, they will likely obtain documents relating to the business, interview employees, customers, and affiliated businesses, and request that the borrower submit to an interview.  If criminal investigators believe that a borrower knowingly made false statements on the loan application or loan forgiveness application, federal charges could be brought against the borrower.

What are the possible penalties stemming from a PPP fraud investigation?

If the SBA determines a borrower was ineligible to receive a loan, it may ask that the borrower repay the loan amount by a certain date.  The SBA could also seek administrative remedies to force repayment of the loan with penalties.  If an SBA audit turns into a criminal investigation, the potential penalties become much more severe.

Federal prosecutors can charge someone accused of lying on their PPP loan application in a number of ways, including making false statements, wire fraud, and bank fraud.  All of these offenses can carry lengthy prison sentences.

For false statements, there are a couple of ways that the government could charge someone.  Depending on the statute, a borrower could face up to two, five, or thirty years in prison and a stiff fine.  Wire fraud and bank fraud can also carry up to 30 years in prison, if the funds involved a financial institution, along with a $1,000,000 fine.

What should I do if I’m being investigated for fraud?

In a government investigation or prosecution concerning PPP loan fraud, the stakes are incredibly high due to the potential consequences.  Based on what our firm has seen, the government is trying to make examples out of business owners by charging them as harshly as possible.  To protect oneself, the first step in any PPP loan investigation is to contact an experienced federal criminal defense lawyer.

A lawyer will deal directly with the government agents conducting the investigation so that you do not have to.  Often, the agents or prosecutors overseeing the investigation will let the lawyer know why they think fraud was committed.  This will give your lawyer an opportunity to conduct his or her own investigation.  Typically, a lawyer will review your loan application and business documents, interview employees and business associates, and if it’s needed, hire a forensic financial expert to review documents.  To assist your lawyer in a PPP loan investigation, you should take the following steps:

  • Hire an experienced federal criminal defense lawyer.
  • Gather all documents related to the PPP loan application and/or the PPP loan forgiveness application.
  • Collect all documents related to business expenses and employees (including mortgage documents, rent, utilities, payroll, and tax forms)
  • Compile a list of names and contact information for employees included in the PPP loan calculations.
  • Provide a detailed accounting of how the PPP loan money was spent.

Once your lawyer has reviewed all of the relevant documents, your lawyer may recommend that you meet with investigators to answer any questions that they may have.  Your lawyer will work to develop a solid defense by showing investigators that any errors in the loan application process were the result of a misunderstanding and not intentional.  In some cases, early intervention by an experienced federal defense lawyer can prevent charges from being filed.